Banking Debate Splits Democrats, but They Might All Win
Senate Democrats might all be winners in the chamber’s debate this week on curtailing some provisions of the Dodd-Frank regulatory overhaul.
On the one hand, progressives can again prove their bona fides as voices against big financial institutions, while more conservative Democrats on the ballot in 2018 from largely rural states can boast they are making the Senate work to support their community banks.
The bill has something for (and against) everyone, in part because there is much debate about how big is too big for a financial institution.
How Democrats answer that question is at the crux of the internal squabble about the banking regulatory rollback moving across the floor of the Senate under the leadership of Banking Chairman Michael D. Crapo of Idaho.
In the view of members of the liberal flank of the Democratic caucus, like Sen. Bernie Sanders of Vermont, the bill is a handout to big banks.
“Unbelievably, at a time of record-breaking bank profits, Congress now wants to deregulate some of the largest financial institutions in America, some of the very same banks that helped cause this financial disaster,” Sanders said in a statement.
The legislation would eventually raise the definition of a systemically important financial institution to $250 billion in assets, from $50 billion. The Federal Reserve still could impose requirements on the institutions in the $100-250 billion range. That bracket includes operations like SunTrust and American Express.
“This bill wouldn’t be on the path to becoming law without the support of these Democrats. The Senate just voted to increase the chances your money will be used to bail out big banks again,” Massachusetts Democratic Sen. Elizabeth Warren tweeted on Tuesday as the chamber voted, 67-32, to limit debate on a motion to proceed to a financial deregulation bill.
Earlier in the day, Warren was asked if she had concerns that her statements in opposition could be used against Democratic colleagues on the ballot this year, many of whom are supporting the legislation.
“All I know is how the American people feel about bank deregulation, and telling a bank that’s a quarter of a trillion dollars that it can be regulated the same way as some tiny little community bank makes no sense at all,” Warren said. “And everyone who votes for this bill has to acknowledge that truth.”
On the other side, Democratic supporters involved in the Banking Committee negotiations focused on the benefits to hometown credit unions, as well as small and medium-sized community banks. That group includes several members of the class of senators facing re-election in 2018, like Joe Donnelly of Indiana, Heidi Heitkamp of North Dakota and Jon Tester of Montana.
“I think if we miss this opportunity, it has dramatic negative impacts on rural America, and I’ve got to tell you we have enough challenges in rural America. You remove capital and the access to capital for families that want to buy a house or who want to expand their small business, we have not done our job as a United States Senate,” Tester told reporters Tuesday. “If we miss this moment in time, it will be very, very unfortunate for the greatest deliberative body in the world.”
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Republican and Democratic supporters alike have pointed to how the current regulatory framework has made community bankers more skittish about making relationship-based loans.
Kansas Republican Jerry Moran told a story on the Senate floor about ranchers who lost their cattle in a fire and thus did not have collateral to get loans, even if their local bankers would have traditionally made the loan.
“This isn’t some small piece of legislation; this is very significant,“ Heitkamp said. “If we are able to get this done, and move forward, the message to the public is that, yes, we can function as a United States Congress.”
Speaking with reporters, Heitkamp and her colleagues rejected the idea that the increased asset threshold would mean no regulation for the banks in the middle. Some stress tests would remain, and supporters argue the plain language means the Federal Reserve would have authority to impose restrictions on an as-needed basis.
“This actually puts more responsibility on the Fed to do the right thing without a broad brushstroke,” Heitkamp said. “It’s on them, and they’re going to have to have to figure out how to get this done. And they will.”
Heitkamp said Tuesday that her focus in the debate would be on making sure the legislative record is clear for the future, in an attempt to avoid having restrictions on regulations read into the bill that are not there.
“The one change that we’re making, which is to establish a different threshold, which everybody agrees on,” Heitkamp said. “You can argue about what point that is, but we have left the door completely open for responsible regulation below that.”
Because a bipartisan contingent of 67 voted to limit debate on proceeding to the bill, there should be fairly clear sailing and a predictable outcome for the legislation, aside from a manager’s amendment that is likely from Crapo.
But for critics like Warren,who was key to the design of the Consumer Financial Protection Bureau that also came about through the Dodd-Frank law, the debate goes beyond the immediate floor fight.
“The importance of fighting now is to stop this bill,” Warren said. “But it’s also to make clear we’re not just going to lay down for the big financial institutions.”